Preventing Supply Chain Bullwhips in 2022
2021 was the year for supply chain shortages. Many industries such as the semiconductors, found themselves struggling to forecast demand accurately. One day, there is no demand for automobiles so to make a profit, manufactures sell their product to small consumer electronic companies and just like that once the deal is done, the demand for cars climbs again and now there is a semi-conductor chip shortage.
Moving into 2022, many companies who once adopted the just-in-time supply chain model at the beginning of the global pandemic to reduce excess materials taking up shelf space are transitioning in to a just-in-time + just-in-case model that protects them from potential shortages with just enough product to bridge an inventory gaps.
The question supply chains are asking is what is the formula to guarantee success and to ensure that supply chains don’t get caught trying to keep up with supply and demand and find themselves suffering from the bullwhip effect. The bullwhip effect in supply chains takes place when there are wild fluctuations in supply and demand. Typically, it occurs when consumers begin panic-buying one particular product. Retailers, who are analyzing consumer behavior, take this insight and act by going to the distributor. The distributor decides to purchase more stock so they go to the manufacturer and the manufacture is incapable of matching demand pace that remains unmatched by sales. This effect was greatly accelerated and exacerbated by the global pandemic.
A well know example of this took place in Singapore. Grocery store egg shelves went completely empty and consumers started to panic. As demand soared, distributors scrambled to keep up. As a result, a couple of months later disturbers were drowning in oversupply and had to dispose of more than 250,000 eggs.
It is challenging to make critical supply and demand decisions in a volatile trade landscape without accurate forecasting capabilities. Forecasting is the formula that supply chains seek to offset the pangs of supply and demand fluctuations. New variables add to the complexity of forecasting such as China’s zero-COVID policy and new viral variants. Nevertheless, it is impossible to persist in today’s volatile trade environment without clarity and the disruptions don’t seem to show any signs of slowing down or letting up.
In 2020, supply chains proved just how vulnerable they were. In 2021, supply chain proved just how resilient they were. In 2022, we expect supply chains to prove just how unrelenting they can be by being proactive and two steps ahead of the rate of disruption. We do expect some of the knots to untangle themselves with time, but supply chains will continue to get smarter.
Albeit it comes at a price to be a savvy and proactive supply chain, it’s much less costly than the price of running out of capital and closing up shop. At TradeRiver, we provide our clients with a revolving line of credit to fund the payments or initiatives they want to - to keep their business growing and their supply chain moving no matter the state of trade. Whether it be to invest in R&D, innovation, or to simply improve supplier relationships, discover the possibilities for your supply chain with an unsecure cross-border solution. Contact us at info@traderiverusa.com to get started and improve the health of your supply chain to keep moving forward.